Saturday, May 10, 2008

I don't care how old you are. When there's a 70% chance the stock market could fall 20% or more, you are looking at the face of risk and not opportunity. In times like these any truly risk averse retirement investor should have little, if any, of their 401(k) capital exposed to the stock market. Switching one's investments to safe money-market alternatives should be a no-brainer.

This, I believe, is both how to stay on track to retiring when you want (if not sooner) and forever keeping your net-worth growing at a pace faster than inflation. This is how to defend the purchasing power of your savings.

There is right now a 70% probability the S&P 100 will fall approximately to the area of 520. As you know I believe a mini-collapse is imminent. I think this could go down looking like late-stage declines in 2001 and 2002. I also believe the fist bounce off bottom will be similarly sharp.

Here is why I think a truly risk averse 401(k) investor should consider stepping aside the stock market: I might be wrong; the stock market could just as well fall farther than I presently think likely.

Yet, even if stocks do not decline as much as 20% over the next several weeks, you will not lose a thing by stepping aside. You pay no capital gains taxes moving your 401(k) capital from one investment alternative to another. That is the beauty thing.

So, this recommendation is just for the record ... and for your edification. Risk is risk and opportunity is opportunity, no matter what your age. Right now, the stock market simply is risky.

And it is, after all, your money and your life's dreams that are at stake...

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

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comments:

Park your capital in a Money Market fund. Bear in mind, this is only a temporary move. You are seeking safety until present risk in the stock market passes.

Once this present risk is behind us, then switch your 401(k) capital back into a position giving you a diversified exposure to the stock market.

One thing you will want to know before you do this is the limit your 401(k) plan manager places on your account activity. If you are able to switch your investment allocations at least once a month, then I recommend you presently shelter your capital as I have recommended here.

Be Strong

Matthew 24:13

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